Improve Your Bad Credit Score for Your Home Loan

Improve Your Bad Credit Score for Your Home Loan

If you’re trying to buy a home, bad credit can be a major barrier to your goal of homeownership. Lenders will use your credit score to determine how risky it is to let you borrow money. They want to know that they’ll be paid back, and since your credit score is based on your history of paying bills properly, this is a primary way for them to make this determination.

If you have bad credit, we have some good news: there are steps you can take to improve your score and help lenders make their decision to loan you money.

According to myFICO.com, 90% of top lenders use FICO® scores when making lending decisions. Raising your FICO score could make all the difference when companies are deciding on granting you anything from a mortgage loan to a cell phone contract.

Here are a few tips that you can start implementing now:

  • Look for mistakes. You may find a payment mistakenly listed as being late or amounts owed being incorrect. Dispute these with the credit bureau immediately so that they can be fixed.
  • Pay your bills on time. Late payments are one of the biggest factors that hurt your credit score. One of your top priorities should be getting up-to-date on your payments and continuing to submit your payments on time. If needed, use a payment reminder tool that many institutions offer.
  • Pay off your debt; don’t move it around. Make a list of everything you owe and the interest rate on each credit account you have. Use this list to create a payment plan to pay off your account with the highest interest rate first and still continue to make minimum payments on the others.
  • Be mindful of your balance-to-limit ratios. As a rule of thumb, you should spread your debt across your cards, rather than being close to the limit on anyone. Your credit will be negatively impacted if you’ve just about hit your credit limit, rather than having low balances across several accounts.

While it may seem like you can never overcome a low credit score, with smart, deliberate steps, you can get control of your financial situation and become a happy homeowner!

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